Strong performance from renewables stocks has helped HSBC's Climate Change Index (CCI) outperform wider markets in 2014, with its solar index up 23% so far this year.
The CCI, which now tracks 363 companies that fit its sustainability criteria, has returned 4.6% since the start of 2014, compared to 0.7% from the MSCI All Country Index (ACWI), according to the bank's latest review.
The result is attributed to significant growth in the wind and solar sectors, which continue to show signs of strong recovery – wind stocks were up 16.5%, according the review.
Hydro, geothermal and marine have seen a combined rise of 8.9%.
But solar is leading the way for the sector. HSBC analysts believe that in a number of US states and European markets solar has now reached grid parity, making it increasingly attractive to a growing pool of investors because it does not need subsidies to be financially viable.
Other regions are also seeing a move towards grid parity, helped by the steep drops in the price of the technology – estimated to have fallen by around 80% in the past five years.
The analysts pointed out that Spain has seen its first unsubsidised 1MW solar project connected to the grid, implemented by privately held company Grupo Enerpro, which has plans to develop a further 10 schemes this year alone.
The review also predicts a 20% rise in the number of solar photovoltaic (PV) modules to be installed this year, following favourable policy developments. China is expected to retain its title as the world's fastest growing solar energy market this year, followed by Japan – both benefiting from particularly supportive government policy.
China is targeting 14GW of solar PV installations over the course of the year, with a new feed-in tariff (FiT) scheme making the market more attractive to investors.
The analysts predict that the 11% reduction in Japan's FiT rate will not deter investors, and the country will see 7.5GW of solar PV projects built in 2014. Although incentives in the US market are not as aggressive as those in Japan and China, it is still set to account for 15% of total global installations for solar.
Attention will increasingly turn to emerging solar markets in Latin America, the analysts say, with Brazil agreeing 122.8MW of installations to be delivered by July 2015, and initiatives in Chile and Peru to be carried out in coming years.
According to the review, there has been a shift towards low carbon energy production this year: "In 2013, returns across the climate theme were driven by Energy Efficiency and Energy Management, which was up an impressive 35.1%. In 2014, we have seen low-carbon energy production take the helm with a strong comeback and a return of 8.6% year-to-date."
Reflecting growth in the market, CCI has included 20 new firms in its index since the start of the year, including China Windpower and UK-based company Infinis Energy. The threshold for inclusion is $600m. Engro Corp and Engro Fertilizer, both public companies operating from Pakistan, have been removed from the index.
Sophie Robinson-Tillett